Millions mis-sold card and identity insurance set for £1.3bn redress

22nd August 2013

Millions of consumers mis-sold identify theft and card insurance could receive more than £1bn in compensation writes Philip Scott.

The redress package is a result of the Financial Conduct Authority’s investigation into Card Protection Plan Ltd (CPP). The City watchdog, has reached an agreement with CPP and 13 high street banks and credit card issuers that will pave the way for redress to be paid to customers who were mis-sold the insurance policies.

Some seven million customers, who between them bought and renewed about 23m policies, will soon receive a letter from CPP giving more information on the process of claiming compensation. The redress bill could be up to £1.3bn with redress per customer depending on the type of policy, or policies, owned and the length of time it was held but according to reports the average payout is expected to be in the region of £300.

The insurance products, ‘Card Protection’, which cost approximately £30 per year and ‘Identity Protection’, which cost approximately £80 per year were widely mis-sold by CPP, resulting in a £10.5m fine in November 2012. Customers were given misleading and unclear information about the policies so that they bought cover that either was not needed, or to cover risks that had been greatly exaggerated.

As well as CPP selling directly to customers, high street banks and credit card issuers introduced millions of customers to CPP. Now CPP and 13 high street banks and credit card issuers have voluntarily agreed to be part of the scheme and will provide the money needed to pay redress.

The FCA says, the involvement of the banks and credit card issuers reflects the fact that they introduced customers to CPP’s products and so must share responsibility for putting things right.

However, while an agreement has been reached with all the parties, the Scheme must first be voted on by customers, who are the scheme’s creditors, and approved by the High Court before redress can be paid. Of the customers who vote, a majority will need to vote in favour of the scheme for this to happen.

This means redress itself is not expected to be paid out until Spring 2014. The time between now and then will be spent seeking Court approval of the Scheme and ensuring CPP customers’ voices are heard.

Martin Wheatley, chief executive of the FCA, says: “”We have been encouraged that, working closely with the FCA and despite their different business needs, a large number of firms have voluntarily come together to create a redress scheme that will provide a fair outcome for customers. This kind of collaborative and responsible approach is a good example of how firms are taking more responsibility and helping – step by step – to rebuild trust.

“We believe this will be a good outcome for customers who may have been mis-sold the card and identity protection policies. Subject to CPP’s customers approving the scheme, these policy holders will be able to claim a full refund of premiums with interest. Doing it this way means customers will get redress via a simple and standardised process, so we are encouraging customers to approve the Scheme when they receive their voting letters in the Autumn.

“To try and ensure that as many people as possible hear about the arrangements and that nobody misses out on redress, CPP, the banks and the credit card issuers have agreed to pay for a series of adverts in the national newspapers.”

Key information for CPP customers:

Any affected customer will be contacted by CPP from 29 August 2013 onwards. The letters will explain in more detail how the Scheme works and what people can do next. The subsequent letter in the Autumn will also include an invitation to vote on whether the customer is in favour of the Scheme.

If the Scheme is approved by voters, even those who voted against it will still be able to submit a claim for compensation.

If the Scheme is approved, all customers need to do is complete a simple claim form. They do not need to use a claims management company to help them claim redress.

The Scheme is open to all customers who bought or renewed the Card Protection product since 14 January 2005 (when the FCA began regulating the sale of general insurance products) from CPP, a bank or a card issuer who are participating in the Scheme; and customers who bought or renewed Identity Protection from CPP since 14 January 2005 by telephone.

If customers are due compensation they will be entitled to the amount they have paid for their policy since 14 January 2005, less any money paid out by the policy, plus 8% interest on the amount owed.

Should a customer make a claim their policy will be cancelled – even if their claim is rejected.

Some customers will value the product and find some of the features useful, so they should think carefully about whether they want to keep the product before they make a claim.

Any complaints referred to the Financial Ombudsman Service will be considered in line with the terms of the Scheme. From 28 August, a consumer helpline – 08000 83 43 93 and website – www.cppredressscheme.co.uk – will be available.